Intra-Cellular Therapies (NASDAQ:ITCI) Is In A Strong Position To Grow Its Business

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether Intra-Cellular Therapies (NASDAQ:ITCI) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Intra-Cellular Therapies

Does Intra-Cellular Therapies Have A Long Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Intra-Cellular Therapies last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth US$1.0b. In the last year, its cash burn was US$61m. So it had a very long cash runway of many years from June 2024. Notably, however, analysts think that Intra-Cellular Therapies will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

How Well Is Intra-Cellular Therapies Growing?

Happily, Intra-Cellular Therapies is travelling in the right direction when it comes to its cash burn, which is down 68% over the last year. This reduction was no doubt supported by its strong revenue growth of 54% in the same period. Considering these factors, we're fairly impressed by its growth trajectory. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For Intra-Cellular Therapies To Raise More Cash For Growth?

We are certainly impressed with the progress Intra-Cellular Therapies has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Intra-Cellular Therapies' cash burn of US$61m is about 0.7% of its US$8.2b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is Intra-Cellular Therapies' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Intra-Cellular Therapies is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. And even its cash burn reduction was very encouraging. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Intra-Cellular Therapies that investors should know when investing in the stock.

Of course Intra-Cellular Therapies may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.